1. The Swasti Cashew Industries (Private), Ltd., which is the petitioner, has prayed for the quashing of the award made by the industrial tribunal in Mysore, Bangalore, in Industrial Dispute No. 34 of 1960. That award has been published in the Mysore Gazette dated 11 January 1962. By that award, the industrial tribunal has directed the payment of a bonus at the rate of 5 per cent of the annual earnings of each workman in the two factories of the petitioner at Mangalore, the workers being represented by the Cashewnut Workers' Union, Mangalore, which is respondent 2(a) and the Dakshina Kannada Gerubija Shramika Sangha which is respondent 2(b).
The award made by the tribunal is attacked by the petitioner's counsel on the following grounds :
(a) The first ground is that the tribunal erred in apportioning the capital of Rs. 5,00,000 and treating the capital used for the Mangalore factories as Rs. 2,50,000. This contention is put as follows :
There is absolutely no plea that the Mangalore factories formed an industrial unit separate from the Quilon factory, with any portion of the share capital separately allocated to it. So, the capital was Rs. 5,00,000. Therefore, the paid-up capital of the company ought to have been treated as Rs. 5,00,000 and not half of it. The rule of thumb adopted by the tribunal is absolutely baseless and no reasons whatever are given by the tribunal to support its conclusion to so apportion the capital. This error in the award is apparent on the face of it.
The further contention is that the tribunal has not even allowed a return at 6 per cent on the paid-up capital, as a deductible item. According to the petitioner's contention, 6 per cent on the total capital of Rs. 5,00,000 is a deductible item on the basis of the Full Bench formula approved by subsequent Supreme Court decisions. Thus the deductible amount in respect of the return payable on the paid-up capital is Rs. 30,000.
(b) The second ground of attack pertains to the deduction to be made on account of the estimated amount of Income tax payable; it is urged that the tribunal erred in failing to give deduction for the estimated amount of Income tax before proceeding to determine the available surplus.
2. According to the tribunal, the net profits come to Rs. 50,096-8-5 (adding back a sum of Rs. 37,293 on account of debit items disallowed). The incometax payable on this sum of Rs. 50,096-8-5 will be according to the petitioner, Rs. 25,674-7-0. The tribunal calculated at Re. 0-7-0 in the rupee of the net profits (of Rs. 12,803-3-5) towards incometax and the total on that account came to Rs. 5,600 as set out in Para. 29 of the award. It may be mentioned that the tribunal has not given deduction even to this sum of Rs. 5,600. The contention of Sri T. Krishna Rao is that the incometax payable is to be calculated on the notional profits and not on the net profits as shown in the balance sheet. It is also contended that, according to the decisions of the Supreme Court, the deductible amount relating to incometax is to be calculated on the notional profits, such amount being notional incometax and not incometax actually assessed. It is urged that this omission to allow deduction relating to incometax is also an error apparent on the face of the record.
3. Before proceeding further, there is one argument on behalf of the petitioner which should be adverted to. In the previous Writ Petition No. 227 of 1959, there were certain observations made by the High Court, in regard to the paid-up share capital of Rs. 5,00,000. Those observations have been referred to in Paras. 20 and 21 of the present award. It was sought to be contended on behalf of the petitioner that the said observations amount to a finding to the effect that the return has to be calculated on the amount of Rs. 5,00,000 and that, therefore, it was not open to the tribunal to make a distribution of the same between the factories at Mangalore on the one hand and the factory at Quilon on the other. A similar contention had been advanced before the tribunal. But the tribunal took the view that the question had not been covered by the decision of the High Court. In taking that view, the tribunal has stated as follows at Para. 21 of the award :
'From the foregoing, it is clear that the High Court mainly considered the legal aspect of the decision of the additional industrial tribunal and that it decided that the tribunal was wrong in holding that the share capital was reduced from five lakhs to one lakh. There is no observation in the judgment which goes to show that the High Court considered the question as to whether the distribution between the two factories was right or wrong or that it gave a decision on that point. It appears that the contention of Sri Shantaram Pai is correct and that the question is not covered by the decision of the High Court.'
4. It was therefore that the tribunal proceeded to apportion Rs. 2,50,000 of the paid-up share capital amount, to the factories at Mangalore, for the purpose of calculating the return on paid-up capital. Having regard to the context in which those observations were made by the High Court, it seems to us that the view taken by the tribunal is a possible one. Therefore, we will proceed to examine, on its merits, the contention that the tribunal has committed a clear error in treating a sum of Rs. 2,50,000 only, as the paid-up capital for the purpose of working out the return.
5. The question whether two or more units of business under the same ownership form one industrial unit or more, presents difficulties. Guidance for the determination of the question is available in the Supreme Court decisions in Associated Cement Companies v. Their workmen [1960 - I L.L.J. 1], Pakshiraja Studios v. Its workmen [1961 - II L.L.J. 380] and South India Millowners' Association v. Coimbatore District Textile Workers' Union [1962 - I L.L. J. 223]. Where the paid-up share capital is common between two or more of such units; the question of apportioning the share capital is a difficult one and some of those difficulties have been pointed out by the Supreme Court in Workmen of Joint Steamer Companies v. Joint Steamer Companies [1963 - II L.L.J. 349]. But the Supreme Court points out on p. 353 that the task of apportionment, though difficult, may not be wholly impossible of achievement if the necessary materials and evidence are forthcoming in a particular case. On behalf of the respondents it was stated that the petitioner being a company there is bound to be some common features as between the factory at Quilon and the factories at Mangalore and that it would not be right to over emphasize such features, while determining the question as to whether the factories at Mangalore could be considered as being an industrial unit quite separate from or independent of the factory at Quilon, for purposes of the claim for bonus. In this connexion, the learned counsel have also invited our attention to the observations made by the Supreme Court at p. 393 in D.C.M. Chemical Works v. Its workmen [1962 - I L.L.J. 388]. The learned advocate for the petitioner does not dispute the correctness of the proposition that if sufficient material on the point is available, it would be possible to determine whether one of the many units of the same company is not an industrial unit separate from and independent of the others and to apportion the share capital for purposes of the claim for bonus put forward by the workers of that unit. He referred to the observations in Workmen of Joint Steamer Companies v. Joint Steamer Companies [1963 - II L.L.J. 349 at 353] (vide supra) wherein the Supreme Court has indicated that if the workmen are able to adduce the necessary evidence by examining except witnesses, like actuaries, accountants or others, it may be possible for the tribunal to apportion the income, expenditure, paid-up capital and working capital. But, his objection in the present case is that at no time had the respondents taken up the stand either that the factories at Mangalore formed a separate industrial unit, nor had adduced any evidence which could justify any apportionment of the paid-up capital. On the other hand, it was contended on behalf of the respondents that the tribunal had broadly considered the dealings of the two factories as disclosed by the balance sheet from Exs. M. 1 to M. 4 and had then made the apportionment. After a careful consideration of the respective contentions, we are satisfied that there is no force in the argument advanced on behalf of the respondents. It is undisputed that the profit for the relevant year as shown in the balance sheet was in respect of the units at both the places. The respondents had not taken the stand that the factories at Mangalore formed an industrial unit which was independent of the factory at Quilon; nor had any evidence been adduced to show that the management had actually treated the factories at Mangalore as a separate unit. In these circumstances, there was no material before the tribunal which could have justified its apportioning one-half of the paid-up capital to the factories at Mangalore. The tribunal purported to do so as a rule of the thumb. There was no authority for it to do so. In Para. 14 of the petitioner's affidavit, it is stated as follows :
'The petitioner company is carrying on business and in the year 1956 the company had also a branch business in Quilon. The head office is at Mangalore and the managing director operates the business from Mangalore. The petitioner company is assessed to incometax on the basis of the entire business. The return on the paid-up capital has to be provided for from out of the income of the company as a whole. It is not possible as a working rule to allocate any portion of the paid-up capital to different branches of the petitioner-company. The tribunal is wrong in apportioning the share capital between the Mangalore and the Quilon branch 'as a rule of thumb half and half' and thus allowing only Rs. 15,000 as a return on paid-up capital. The industrial tribunal itself in Para. 50 of its award seems to think that a provision ought to be made on the entire 5 lakhs and accordingly makes an observation, 'a provision of Rs. 30,000 has already been made in respect of share capital.' The conclusion on this point arrived at by the industrial tribunal is clearly wrong and such error is an error of law apparent on the face of the record.'
6. It should be stated that no counter has been filed by the respondents to meet the above objections. The finding of the tribunal also is that the same share capital was utilized for the purposes of the factories at both the places (vide the end of Para. 21 of the award). When the paid-up capital of Rs. 5,00,000 was common to the units at Mangalore and Quilon (the latter being treated as a branch) and there was no material or evidence on the basis of which any apportionment could have been made, the tribunal was clearly in error in purporting to adopt the rule of the thumb and treat only Rs. 2,50,000 as the paid-up capital for computing the return thereon. It is on the sum of Rs. 5,00,000 that the return should have been calculated.
7. We will now deal with the second ground of attack. The actual amount paid by way of incometax is not very material. What has to be deducted on account of incometax would be an estimated amount worked out according to the Full Bench formula. In Bharat Barrel and Drum Manufacturing Company case [1960 - II L.L. J. 241], the appellant had been assessed to incometax amounting Rs. 2.35 lakhs. It was contended on his behalf that he should be allowed deduction of that entire amount and not the notional figure of Rs. 1.61 lakhs which had been arrived it as incometax, according to the Full Bench formula. While negativing that contention, the Supreme Court has stated at pp. 242-243 the above case as follows :
'We are of opinion that for the purpose of the Full Bench formula, the incometax payable has to be deducted on the figures worked out according to the formula and it is immaterial what actual incometax is - whether more or less. In this particular case, the incometax appears to be more . . . The industrial tribunal, however, is not concerned directly with what the incometax authorities assess as actual incometax in a particular year; it is concerned with working out the Full Bench formula in accordance with its notional calculations . . .'
8. This case was referred to in the subsequent decision in Madura Mills Company, Ltd. v. Their workmen and others [1961 - I L. L.J. 502] and the same proposition was affirmed. In another recent case in Hindustan Times v. Their workmen [1963 - I L.L.J. 120 at 121] the Supreme Court has stated as follows :
'It is well-settled that in arriving at the available surplus for the purpose of ascertaining the bonus it is the amount of tax notionally payable and not the amount actually paid or provided for in the balance sheets that has to be deducted from the net profits.'
9. It is, therefore, clear that deduction will have to be given for the amount of income-tax notionally payable, for ascertaining whether any surplus is available. In the present case, it is undisputed that the net profits as shown in Ex. M. 1 is Rs. 12,803-3-5. As stated in Para. 59 of the award, there should be added to the above sum, the amount of Rs. 37,293-5-0 made up of items of expenditure disallowed by the tribunal. This brings the total net profits to a sum of Rs. 50,096-8-5 on which incometax will have to be calculated. When calculated at the rate applicable in the relevant year, the incometax payable will be Rs. 25,674-7-0. This is the amount of income-tax notionally payable and for which deduction ought to be given.
10. It was sought to be contended on behalf of the respondent that for ascertaining the amount of incometax notionally payable, the items of expenditure which have been disallowed by the tribunal ought not to be taken into account. In this connexion, reference has been made to Tulsidas Khimiji v. Their workmen [1962 - I L.L.J. 435] where it has been observed by the Supreme Court that the notional basis adopted for working out the Full Bench formula must have relevance to the law of incometax. It was urged that before the tribunal the management had claimed deduction for a sum of Rs. 5,600 on account of incometax (vide Para. 29 of the award) and that it was not now open to the petitioner to claim deduction of larger amount for finding out whether any surplus is available. The learned advocate for the respondents brought to our notice the fact that for determining the amount notionally payable by way of income-tax, the Supreme Court had, in Meenakshi Mills case [1958 - I L.L.J. 239] negatived the plea for the inclusion of a sum claimed on account of depreciation which has been disallowed by the tribunal. It was also pointed out that in Hamdard Dawakhana Wakf case [1962 - I L.L.J. 772], the Supreme Court had declined to include a sum of money in respect of which deduction had not been claimed before the tribunal for the purpose of determining the amount of incometax notionally payable. It cannot be disputed that even for determining the amount of incometax notionally payable, the relevant provisions of the Incometax Act will have to be taken into consideration for finding out whether deduction should be given or not in respect of any particular item. Having regard to the facts of the present case, we are satisfied that none of these decisions will be of any assistance to the respondents. In Meenakshi Mills case [1958 - I L.L.J. 239] (vide supra), the amounts for which deduction had been claimed on account of depreciation had been disallowed by the tribunal. The contention before the Supreme Court was that the said disallowed amount should be added to the total gross profits while finding out the amount notionally payable by way of incometax. This contention was not accepted by the Supreme Court which pointed out that under the Incometax Act, the mills would not be required to pay incometax in respect of those amounts. In Hamdard Dawakhana Wakf case [1962 - I L.L.J. 772] (vide supra) certain portion of the profits was exempt from taxation as it had been dedicated to charity. Before the tribunal, the employer had not claimed that the said amount should be taken into consideration for finding out the amount notionally payable by way of incometax. But before the Supreme Court the employer wanted this amount also to be included in the net profits for finding out the amount notionally payable by way of incometax. The Supreme Court did not accept that contention. It will be noticed that in both Meenakshi Mills case [1958 - I L.L.J. 239] (vide supra) and Hamdard Dawakhana Wakf case [1962 - I L.L.J. 772] (vide supra) the amounts of disallowed items were those in respect of which the employer would not be required to pay incometax under the provisions of the Incometax Act. But that is not the position so far as the disallowed items in the present case are concerned. When the employer had shown these items as deductible items of expenditure, there was no question of his claiming that in computing the incometax, these should be taken into account. When the tribunal disallowed these items and they became added on to the profits, they became part of the total amount of profits on which the incometax notionally payable had to be computed. Therefore, there could be no valid objection to the inclusion of the sum of Rs. 37,293-5-0 in the total amount on which the incometax notionally payable will have to be calculated.
11. Having regard to the legal position, as set out in the decisions above referred to, it is clear that the tribunal has erred in arbitrarily splitting up the paid-up share capital amount and calculating the deductible return only on the sum of Rs. 2,50,000. In the absence of any evidence or materials to the contrary, the deductible return should have been calculated on the whole of the paid-up capital of Rs. 5,00,000. The failure to do so, is an error apparent on the face of the record. So also, the failure of the tribunal to determine in accordance with the above decisions, the amount of incometax notionally payable and to give actual deduction to the same, before finding whether any surplus amount was available for being distributed as bonus.
12. One of the conditions which must be satisfied before the claim for bonus can be effectively made is, that the industry must be shown to have made profits. In Meenakshi Mills case [1958 - I L.L.J. 239] (vide supra), the Supreme Court has stated as follows at p. 242 :
. . . 'Even so, the claim for bonus cannot be effectively made unless two conditions are satisfied; the wages paid to workmen fall short of what can be properly described as living wages; and the industry must be shown to have made profits which are partly the result of the contribution made by the workmen in increasing production.'
13. Again in the case of Lipton, Ltd. v. Their employees [1959 - I L.L.J. 431], the Supreme Court has stated at p. 438, as follows :
'The true nature of a claim for bonus has been the subject of many decisions in labour tribunals and Courts. It has been judicially recognized that bonus is not deferred wage, and the justification for a demand of bonus as an 'industrial claim' arises when wages fall short of the living wage and the industry makes sufficient profits to which both labour and capital have contributed. Substantially, the claim for bonus is a claim which is paid out of the available surplus from the profits of an industrial undertaking, to which both labour and capital have contributed . . .'
14. It was pointed out for the respondents that in the relevant year, bonus had been paid to the workers in the Quilon factory. But it would appear that this payment was made because of an agreement to the effect that bonus would be paid to the workmen there, irrespective of whether there was any profit or not. Therefore, the respondents cannot derive any help from that circumstance; unless it is established that there was profit in the relevant year, their claim for bonus cannot succeed.
On the basis of our conclusion on the two points mentioned above, viz,
(1) the return on investment, and
(2) incometax notionally payable,
the resultant position in regard to surplus would be as under :
Net profits to taken into account - Rs. 50,096-8-5.Rs. A. P.Deductible items -Return on capital of Rs. 5,00,000 at 6 per cent . . . . . . 30,000 0 0 Amount of incometax notionally payable . . . . . . 25,674 7 0-----------------Total . . . 55,674 7 0-----------------
15. Thus there is a deficit of Rs. 5,577-14-7 and the company would be working at a loss during the relevant period. Therefore, the first party would not be entitled to any bonus.
16. Sri T. Krishna Rao further contended that the tribunal ought not to have added back Rs. 33,000 but should have given deduction for it as payment made towards roasting charges. We are not inclined to accept the contention of Sri T. Krishna Rao regarding roasting charges. From the discussion on this question as incorporated in Paras. 41, 42 and 43 of the award, it appears to us that the debit in respect of roasting charges was in pursuance of an agreement between the petitioner-company and Hindustan Cashew Products (Private), Ltd. which the tribunal finds is nominal. This would be a question of fact which is not open for us to consider. Further, it is unnecessary for us to consider this aspect of the matter in view of what we have already stated about there being no surplus.
17. In the result, the award made by the industrial tribunal is quashed. Having regard to the circumstances in the case, we order that parties shall bear their own costs.